What's the ideal safe retirement net worth target?

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Mlm
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Re: What's the ideal safe retirement net worth target?

Post by Mlm » Tue Jul 04, 2017 4:18 pm

I feel so inadequate :shock:
Reality has a way of catching up with you

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Re: What's the ideal safe retirement net worth target?

Post by RAchip » Tue Jul 04, 2017 4:20 pm

"If somebody wants to be able to spend $25k a year or so then $10mm is a decent number."

With $10mm you could spend $25,000 PER MONTH ($300k per year) with no worries.

My expenses are high (over $1mm per year). $25mm does not feel like enough to me. We could cut back on spending (quitting net jets would save a lot and I could sell a vacation house or two). But Im only 52 so health insurance for me, my wife and 6 kids for decades of retirement is still a major concern.

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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:32 pm

afan wrote:If you enter the home at 70 and figure 100 as a maximum plausible lifespan for someone who spent 30 years in a nursing home
Nobody lives 30 years in a nursing home. And especially not if they start out at 70 with the highest cost for 24/7 round the clock care.
Last edited by HomerJ on Wed Jul 05, 2017 3:40 pm, edited 1 time in total.

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:40 pm

Lowndes wrote:$10mm is my goal as that allows me to have a conservative 3% retirement withdrawal at my current base salary ($300k a year).
Just FYI, you don't need to replace your current salary to live the same lifestyle in retirement. Your current expenses are far less than $300k, because you obviously must be saving a good chunk of it to accumulate $10 million.

I would hate to see you work 10 more years than necessary (and possibly die at your desk), because you didn't understand this.

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:42 pm

zaboomafoozarg wrote:
bobcat2 wrote:1980s 11.3% annual real return with dividends reinvested before any expenses or taxes.
1990s 14.1% annual real return with dividends reinvested before any expenses or taxes.
One decade of returns like that would leave me set for life, let alone 2 decades! But I don't think I will see any decades like that in the next 60-70 years.
We've seen 7 years of returns like that just now. 2010-2017 - around 12% annual real returns

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Re: What's the ideal safe retirement net worth target?

Post by ETadvisor » Wed Jul 05, 2017 3:47 pm

$2.5 m

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:50 pm

sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You won't pay 35% effective tax on your IRA withdrawals. Unless you're withdrawing $500,000 a year I guess.

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Re: What's the ideal safe retirement net worth target?

Post by David Jay » Wed Jul 05, 2017 5:48 pm

N10sive wrote:this 25 times calculation based on the average salary you think you would need to live off of in old age, do you subtract what you expect to get in SS? I know some argue that it won't be there when millenials retire but just wondering about this calculation
Yes, subtract out SS. 4% withdrawal (25x) is based on actual expenses.
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1210sda
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Re: What's the ideal safe retirement net worth target?

Post by 1210sda » Wed Jul 05, 2017 8:13 pm

If someone is 33 yrs old, earns 300,000, wants $10,000,000 by age 63 and can generate a 7% cagr, they would need to invest about 25% of their income every year ($75,000, Beg of Yr in the first year) assuming a 3% salary increase every year.

Their taxes would be about $75,000 per year in the first year. So they are really only spending $150,000 per year (in the base year)

If inflation is 3%, the PV of their 10,000,000 would be about $3,750,000 at age 63. At a 4% swr, that's about $150,000 per year.

These are very general assumptions, esp the taxes paid every year. Don't know what the California state income tax is or what the San Francisco city tax (if there is one) might be.

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Re: What's the ideal safe retirement net worth target?

Post by The Wizard » Wed Jul 05, 2017 8:21 pm

sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You could do it either way.
In my case, I deal with before tax since the bulk of my assets prior to retirement were in tax deferred accounts and I'm trying roughly to match my previous net employment income...
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Re: What's the ideal safe retirement net worth target?

Post by zaboomafoozarg » Wed Jul 05, 2017 8:54 pm

HomerJ wrote:
zaboomafoozarg wrote:One decade of returns like that would leave me set for life, let alone 2 decades! But I don't think I will see any decades like that in the next 60-70 years.
We've seen 7 years of returns like that just now. 2010-2017 - around 12% annual real returns
That's true. Maybe it'll continue!

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Re: What's the ideal safe retirement net worth target?

Post by munemaker » Wed Jul 05, 2017 10:16 pm

avalpert wrote:It has to be defined in terms of target spending - the 'average' number would be meaningless to everyone except that mythical average person.

I would say 25-30 times expenses is a safe target.
In this case, expenses would be net expenses, meaning after deducting cash flow from other sources such as pensions and social security.

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Re: What's the ideal safe retirement net worth target?

Post by Top99% » Wed Jul 05, 2017 10:23 pm

I think once you get beyond enough to cover your fixed minimum expenses comfortably, the incremental amount you need comes down to how much longer you are willing to work to pay for non-essential items like good food, expensive toys, travel etc. That will be different for everyone. In my case I would rather retire a decade early and forgo expensive material goods but I did work an extra 5 years to afford expensive food and some moderate travel. The key thing is to think long and hard about what truly makes you happy. For some people well under $1m + SS is enough while as others have pointed out for some $10m or more is needed. For those of you needing a perspective different from the "need >$10m" crowd spend some time on MrMoneyMustache.com
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Re: What's the ideal safe retirement net worth target?

Post by Noobvestor » Wed Jul 05, 2017 11:24 pm

SuzBanyan wrote:
avalpert wrote:
jharkin wrote:
ticker wrote:$10M is a very standard number that people talk about in the Bay Area. That means decent but not too big house, small property in the mountain and some money in the bank. Nothing very fancy, pretty much basic stuff. More and more i hear 50M as THE Number. (In each bubble the number goes up, then it comes crashing down when the reality hits).

invst65 wrote:
That was meant as some kind of joke, right?
Part of living in a bubble, is that you do not realize though are living in it. Try taking a roadtrip through the Midwest or deep south and then tell us what's average.

You should realize that "the bay area" is something like only a couple % of the US population and is the extreme outlier, by a couple orders of magnitude, for cost of living. Its so far from average you almost need to exclude it from statistical studies of income in this country to get numbers that make sense for the rest of us.
Also keep in mind that when people use 'the Bay Area' in this context they are referring to a fairly small slice of the actual population of the Bay Area that exist in an insulated circle of like-minded individuals.
My retired parents live in the Bay Area in a 2500 sf home on quarter acre with a view of the Bay and the City, a cabin in the Sierras, and a rental property, also in the Bay Area. Their net worth, including their home, is probably less than $2M. They are comfortable with pensions from the school system and military. Yes, even in the Bay Area it is possible to retire on less than $10M.
Setting aside the two *additional* properties, I would love to know where in the Bay you can have a 2500 SF home on a quarter acre with a view of the Bay and the city for less than, say, 1MM (I'm assuming the other 1MM is tied up in the other two properties and liquid spending needs). I'm casting my mind's eye over the entire region and I can't figure it out. I'm not doubting it exactly, mostly just marveling I guess?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: What's the ideal safe retirement net worth target?

Post by baw703916 » Thu Jul 06, 2017 12:35 am

Noobvestor wrote: Setting aside the two *additional* properties, I would love to know where in the Bay you can have a 2500 SF home on a quarter acre with a view of the Bay and the city for less than, say, 1MM (I'm assuming the other 1MM is tied up in the other two properties and liquid spending needs). I'm casting my mind's eye over the entire region and I can't figure it out. I'm not doubting it exactly, mostly just marveling I guess?
My guess would be Vallejo. A place whose previous mentions on this board have been mostly in the context of municipal bonds defaulting.

More generally, what I see in this thread is kind of interesting and disturbing. The vast majority of Americans retiring will do so on far less than $1 million, and many (likely even most) of them will do just fine. So what leads Bogleheads to think we need such a large nest egg, one that the vast majority of people will never achieve (and the economy would probably be wrecked if they tried--essentially no demand for any discretionary product, and a huge run-up in asset prices due to excessive savings). I confess that in trying to super-size my nest egg, I'm just as guilty as the next person...

But I don't think anybody is necessarily being irrational. You can probably have a comfortable retirement (in an LCOL area anyway) with a modest nest egg. But to be absolutely sure of not running out of money (given things like LTC, future healthcare costs, uncertainty in returns), requires a whole lot more in assets, given that in these cases one must assume at least some of the risk, as insurance options are inadequate. There are probably a lot of policy implications in people feeling the need to accumulate so many assets, but those are beyond the scope of this board.
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Re: What's the ideal safe retirement net worth target?

Post by nova1968 » Thu Jul 06, 2017 7:01 am

They say the milestone is $75,000 a year but its also a matter of being content with what you have. There are plenty of people who have accumulated $10,000,000 who are not satisfied with what they have and want more.

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Re: What's the ideal safe retirement net worth target?

Post by bengal22 » Thu Jul 06, 2017 11:27 am

I really try not to overthink the whole net worth target thing. I retired when it felt right and just knew that I had enough.

To justify my feeling, I know what my annual expenses are and I know what my eventual SSA payouts will be and I know what my pension is and will be. To me the first place to start is Expenses minus known income. In my case, when I turn 70 and start SSA and RMD's, my shortfall will be about 15K a year. I also look at the earning potential of my portfolio. Based on that, I am sure that a $1million portfolio would be plenty and will in fact grow during my retirement.
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Re: What's the ideal safe retirement net worth target?

Post by finite_difference » Thu Jul 06, 2017 6:55 pm

I have been thinking about this recently.

I think $50,000 (2017 dollars) per year would be enough to live quite well assuming a paid off house. Worst case scenario I can relocate to a LCOL area of the US or move to a LCOL country. And hopefully get some SS on top of that.

With a SWR of 3.5% that's a portfolio of $50,000/0.035 = $1.4 million.
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Re: What's the ideal safe retirement net worth target?

Post by sfchris » Fri Jul 07, 2017 2:47 am

HomerJ wrote:
sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You won't pay 35% effective tax on your IRA withdrawals. Unless you're withdrawing $500,000 a year I guess.
What if you are in a state with 10% tax?

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Re: What's the ideal safe retirement net worth target?

Post by Noobvestor » Thu Aug 03, 2017 1:27 am

baw703916 wrote:
Noobvestor wrote: Setting aside the two *additional* properties, I would love to know where in the Bay you can have a 2500 SF home on a quarter acre with a view of the Bay and the city for less than, say, 1MM (I'm assuming the other 1MM is tied up in the other two properties and liquid spending needs). I'm casting my mind's eye over the entire region and I can't figure it out. I'm not doubting it exactly, mostly just marveling I guess?
My guess would be Vallejo. A place whose previous mentions on this board have been mostly in the context of municipal bonds defaulting.

More generally, what I see in this thread is kind of interesting and disturbing. The vast majority of Americans retiring will do so on far less than $1 million, and many (likely even most) of them will do just fine. So what leads Bogleheads to think we need such a large nest egg, one that the vast majority of people will never achieve (and the economy would probably be wrecked if they tried--essentially no demand for any discretionary product, and a huge run-up in asset prices due to excessive savings). I confess that in trying to super-size my nest egg, I'm just as guilty as the next person...

But I don't think anybody is necessarily being irrational. You can probably have a comfortable retirement (in an LCOL area anyway) with a modest nest egg. But to be absolutely sure of not running out of money (given things like LTC, future healthcare costs, uncertainty in returns), requires a whole lot more in assets, given that in these cases one must assume at least some of the risk, as insurance options are inadequate. There are probably a lot of policy implications in people feeling the need to accumulate so many assets, but those are beyond the scope of this board.
Vallejo is definitely on my radar, though most of the people I know in the Bay live much closer in and interact more because of that. What's weird is that I think everyone (friends who rent and myself as well) knows this is a temporary game - eventually, we/they will have to move out if we/they don't want to spend our life's savings on a home. I'm richer than most I know, but can still not afford a decent place right in the Bay.

It creates a strange culture over time of 'well I won't be here forever' which I find sad - makes it hard for me personally to invest in my time here in some ways, because unless something changes in terms of (a) the market or (b) my personal wealth, it's just not realistic for me to stay close by long term - at best, I can move a ways out and see how that works out. Of course, I could live well in a low COL area, but ...

I guess what I'm trying to point out here is human connections and relationships, which I find harder to make and maintain as I get older, will suffer. The idea that I'll have to move away from my present location makes it harder to invest in developing those. And presumably a lot of people I know now who can't afford to say even in the area will leave entirely. So where does that leave me as I slowly head toward retirement?

As a relatively younger person on this forum, I have a question: how do folks living in high COL areas feel about eventually having to move away from everyone you know in those areas in order to retire? Sure, you can do it to survive, but what will/does it do to your life goals, particularly if those life goals involve growing to know people in your area over time both personally and professionally?
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Re: What's the ideal safe retirement net worth target?

Post by baw703916 » Sat Aug 05, 2017 7:30 pm

Noobvestor wrote: Vallejo is definitely on my radar, though most of the people I know in the Bay live much closer in and interact more because of that. What's weird is that I think everyone (friends who rent and myself as well) knows this is a temporary game - eventually, we/they will have to move out if we/they don't want to spend our life's savings on a home. I'm richer than most I know, but can still not afford a decent place right in the Bay.

It creates a strange culture over time of 'well I won't be here forever' which I find sad - makes it hard for me personally to invest in my time here in some ways, because unless something changes in terms of (a) the market or (b) my personal wealth, it's just not realistic for me to stay close by long term - at best, I can move a ways out and see how that works out. Of course, I could live well in a low COL area, but ...

I guess what I'm trying to point out here is human connections and relationships, which I find harder to make and maintain as I get older, will suffer. The idea that I'll have to move away from my present location makes it harder to invest in developing those. And presumably a lot of people I know now who can't afford to say even in the area will leave entirely. So where does that leave me as I slowly head toward retirement?

As a relatively younger person on this forum, I have a question: how do folks living in high COL areas feel about eventually having to move away from everyone you know in those areas in order to retire? Sure, you can do it to survive, but what will/does it do to your life goals, particularly if those life goals involve growing to know people in your area over time both personally and professionally?
I don't necessarily have an answer for your last question, but I appreciate your thoughts. I guess the irony about a lot of HCOL areas is that one you've bought your "forever" residence and paid it off, it's no longer an HCOL area! That's certainly true where I now live, and may be even more true in CA, due to the property tax advantages of being a long-term owner. Of course that just limits the number of houses for sale, with the consequent increases in price for people wanting to move there.
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Re: What's the ideal safe retirement net worth target?

Post by Johnnie » Sun Aug 06, 2017 9:22 am

Mlm wrote:I feel so inadequate :shock:
In the land of the blind the one-eyed man is king.

In the region of <$100,000 median home values, the Boglehead retiree with $1m investible assets and who waits until 70 to collect SS is an aristocrat.
"I know nothing."

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Re: What's the ideal safe retirement net worth target?

Post by hudson » Sun Aug 06, 2017 11:36 am

Johnnie wrote:
Mlm wrote:I feel so inadequate :shock:
In the land of the blind the one-eyed man is king.

In the region of <$100,000 median home values, the Boglehead retiree with $1m investible assets and who waits until 70 to collect SS is an aristocrat.
Johnnie, I think you're on to something; below US News Money 10 Places to Buy a Retirement Home for Under $100,000

https://money.usnews.com/money/retireme ... der-100000

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Johnnie
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Re: What's the ideal safe retirement net worth target?

Post by Johnnie » Sun Aug 06, 2017 12:11 pm

hudson wrote:
Johnnie wrote:
Mlm wrote:I feel so inadequate :shock:
In the land of the blind the one-eyed man is king.

In the region of <$100,000 median home values, the Boglehead retiree with $1m investible assets and who waits until 70 to collect SS is an aristocrat.
Johnnie, I think you're on to something; below US News Money 10 Places to Buy a Retirement Home for Under $100,000

https://money.usnews.com/money/retireme ... der-100000
Thanks. I'll add this well known psychological caution: Having regular social companions who have a lot more money than yourself is a recipe for unhappiness.

~~~~~~~~~~

FWIW, my own retirement home is a 3-bedroom, one-level lakefront ranch not far from two places on that US News list, in a part of the world that gets cold in the winter but which many inhabitants refer to as "God's Country." I've owned it for years as a good rental unit and it's probably worth $150k right now.

My all-in annual living expenses there would be around $30k (a modest health insurance benefit helps). At that level 4% distributions from a $1 million portfolio plus Social Security at 70 would generate around $35,000 in pure after-tax discretionary income. Mad money.

I'm aiming a bit higher but it ain't bad. Not caviar and Lear jets, but not bad.
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Re: What's the ideal safe retirement net worth target?

Post by Portfolio7 » Sun Aug 06, 2017 2:02 pm

Mlm wrote:I feel so inadequate :shock:
Yeah. Near as I can figure, DW and I are in top 5% of savers in this country for age and income, and this place is still an eye opener.
An investment in knowledge pays the best interest.

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Re: What's the ideal safe retirement net worth target?

Post by Nestegg_User » Sun Aug 06, 2017 2:21 pm

Interesting but long thread...

From upthread, the 25x (4%) comes from a thirty year retirement and 50/50 allocation (with info from 1926-2014)--- same allocation but 35 year retirement gives 96% survival at 4%, 40 year retirement only has 86% survival at 4%, while 20 year retirement gets 99% at 5% (80% at 6%) so length of retirement and hence when you retire has a reasonable impact on multiple needed.

AFA "Bay Area ", I remember a few decades ago being recruited for the area-- but even then the salaries were not commensurate for the costs (nor were those in the NYC metro). Therefore I spent my years away from those UHCOL areas. I suspect the same thing occurs today in that a few can afford housing and the "nice things "-- but I suspect that it would have eluded me had I tried living there.

Now, recently retired in a medium COL area, but which due to lower normal salaries is beyond the ability for average working residents to afford their own house (many buyers are relocating retirees like myself or come from HCOL areas and pay cash for houses). We have over two large in investable assets plus pension and have paid off house and no debt, and haven't yet started SS as still early sixties-- and are pulling less than 1% WR even with repairs like new Furnace/heat pump, refinishing deck, and completing the build out of a reasonable size outbuilding. We figure that if we can't make it with what we have that the rest are scr€wed with their savings levels.

( note from upthread that fewer than 1.5 million have investable assets over 5 million, so that's nowhere near the "normal " retirement)

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Re: What's the ideal safe retirement net worth target?

Post by sdoraisw » Wed May 16, 2018 6:40 pm

for folks who live in high cost areas (bay area for example), people have a lot of their worth tied to their home. Does home equity count towards net worth?

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Re: What's the ideal safe retirement net worth target?

Post by 22twain » Wed May 16, 2018 10:13 pm

sdoraisw wrote:
Wed May 16, 2018 6:40 pm
Does home equity count towards net worth?
As far as funding your retirement is concerned, you should count home equity only if you plan to tap into it to help pay other expenses if necessary. For example, you might plan to sell your (expensive) house and move to a LCOL area where houses aren't as expensive. Or downsize to a smaller house or a condo. Or take out a reverse mortgage.
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Re: What's the ideal safe retirement net worth target?

Post by CurlyDave » Thu May 17, 2018 12:11 am

I must have done this all wrong, but it worked out pretty well for me.

I worked and accumulated up until I made the decision that I did not know how many days I had left, but I did know that I was selling them to the company for less than they were worth to me.

Now I had read the Trinity Study, looked into "safe" withdrawal rates, looked at various strategies, and had a good feeling for what income we would have in retirement, or as I preferred to say: after declaring ourselves financially independent. I also had read a study about the effects of stress on lifespan and knew that the average retiree from my company collected 18 or 19 pension checks. It seemed to me that making some lifestyle changes might be beneficial.

As things worked out equities have been very good to us, and my rental real estate side gig has done well also. So, after 10 years, our equities portfolio is near an all-time high, our rental income is at an all-time high, and I am collecting my 120 th check this month. We are financially independent, but many would not say we are retired because of the rentals.

Retire earlier and learn to live on less.

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Re: What's the ideal safe retirement net worth target?

Post by Altron » Thu May 17, 2018 3:50 am

DaftInvestor wrote:
Wed Jun 15, 2016 2:26 pm
Health-care costs in retirement are the biggest unknown in my opinion.
Agreed. This can really break the model. I would assume health care costs rise much faster than inflation and increase the future expense assumption to cover that.

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Re: What's the ideal safe retirement net worth target?

Post by johnz1001 » Thu May 17, 2018 5:30 am

I worked and accumulated up until I made the decision that I did not know how many days I had left, but I did know that I was selling them to the company for less than they were worth to me.

:thumbsup

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Re: What's the ideal safe retirement net worth target?

Post by DR » Thu May 17, 2018 9:13 am

I've never thought that net worth was a very interesting number, and I can't see that it's all that relevant to spending in retirement. We don't live on net worth; we live on spending. As others pointed out, we also don't live on "income." We dissave for the most part, which is not income.

Much of my very modest net worth is in my home, and I can't spend my home--given that I'm not interested in a reverse mortgage. So that big part of my net worth is irrelevant--or just not interesting as I said.

My interest in how much I have to spend in retirement.

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Re: What's the ideal safe retirement net worth target?

Post by jackholloway » Thu May 17, 2018 9:27 am

sfchris wrote:
Fri Jul 07, 2017 2:47 am
HomerJ wrote:
sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You won't pay 35% effective tax on your IRA withdrawals. Unless you're withdrawing $500,000 a year I guess.
What if you are in a state with 10% tax?
CA is 4% up to 62k of income for MFJ.

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Re: What's the ideal safe retirement net worth target?

Post by frugalmama » Thu May 17, 2018 10:16 am

epoxyresin wrote:
Thu Jun 16, 2016 7:23 pm
This thread has certainly revealed the bias of bogleheads towards being high-net-worth individuals.

1) Your house absolutely can be spent in retirement. It can be borrowed against, or it can be sold and used to pay rent (which obviously adds to your expenses). There's no rule that your kids need to inherit their childhood home when you kick the bucket.
2) Someone here said that they considered an "average" middle class to be $80 k per year. The median household income in the US is $52 k a year. An $80k household income would put you in something like the 70th percentile. An $80k individual income is close to the 90th percentile.
3) There are plenty of retired people who more-or-less live on social security. No, you're not taking trips to Europe every year, but you're not eating cat food either.
I agree with this. I wouldn't rely on social security if you are in your 30s, but at the end of he day, the point is that you don't actually need that much to just live a healthy fulfilling life in retirement.

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Re: What's the ideal safe retirement net worth target?

Post by sdoraisw » Thu May 17, 2018 12:01 pm

22twain wrote:
Wed May 16, 2018 10:13 pm
sdoraisw wrote:
Wed May 16, 2018 6:40 pm
Does home equity count towards net worth?
As far as funding your retirement is concerned, you should count home equity only if you plan to tap into it to help pay other expenses if necessary. For example, you might plan to sell your (expensive) house and move to a LCOL area where houses aren't as expensive. Or downsize to a smaller house or a condo. Or take out a reverse mortgage.
I want to keep my home and retire in the home I have. I am 45 and I think I need $3M by 55 to call it quits. @3% dividend yield, that is 90K/year. I can't tap into 401k-dividends? maybe someone can answer that. I heard you can tap into 401k at 55, which i won't because i will have other investments outside of retirement accounts. Any suggestions/thoughts, is this a # that makes sense (I am assuming 90k/year is enough to take care of me) and anything else.

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willthrill81
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Re: What's the ideal safe retirement net worth target?

Post by willthrill81 » Thu May 17, 2018 12:10 pm

I think that savings 50x one's annual spending in absolutely necessary categories may be appropriate for those planning for retirements longer than 30 years. They can still very likely use a 4-5% withdrawal rate (20-25X total annual spending), but if/when the portfolio suffers, they can significantly reduce their withdrawals while still having enough to cover their necessary expenses. Those whose necessary expenses represent a very large portion (e.g. 75% or more) of their annual spending obviously have a harder time trimming down if needed.

Another conservative strategy could be to reduce one's necessary spending to be no greater than 'guaranteed' income sources like Social Security, pension, inflation-adjusted annuity payouts, etc., leaving one's portfolio to cover only discretionary spending.
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GCD
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Re: What's the ideal safe retirement net worth target?

Post by GCD » Thu May 17, 2018 4:43 pm

I may have missed it in the discussion about SS, but people have pensions as well. It has been debated on BH in numerous threads as to how to count pensions in net worth. The general consensus is that they don't count toward net worth since they aren't an asset, but they certainly count toward how you might set your AA in retirement. Pensions are an example of how net worth isn't the whole story. I would be leery of retiring on my net worth, but my wife and I have pensions so large we still LBYM on the pension stream alone. Our net worth doesn't really matter for our retirement.

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Re: What's the ideal safe retirement net worth target?

Post by Freefun » Thu May 17, 2018 4:56 pm

GCD wrote:
Thu May 17, 2018 4:43 pm
I may have missed it in the discussion about SS, but people have pensions as well. It has been debated on BH in numerous threads as to how to count pensions in net worth. The general consensus is that they don't count toward net worth since they aren't an asset, but they certainly count toward how you might set your AA in retirement. Pensions are an example of how net worth isn't the whole story. I would be leery of retiring on my net worth, but my wife and I have pensions so large we still LBYM on the pension stream alone. Our net worth doesn't really matter for our retirement.
Ok, I'm lost. I don't understand why my pension isn't an asset. What else is it?

Like some, I'm not particularly interested in calculating my NW (in part because of the pension and my expenses). But I know what my pension amount will be and I know when I'm going to retire and collect it. Not sure why I wouldn't take this into account as an asset and treat it as fixed income component.
Remember when you wanted what you currently have?

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Re: What's the ideal safe retirement net worth target?

Post by GCD » Thu May 17, 2018 5:26 pm

Freefun wrote:
Thu May 17, 2018 4:56 pm
GCD wrote:
Thu May 17, 2018 4:43 pm
I may have missed it in the discussion about SS, but people have pensions as well. It has been debated on BH in numerous threads as to how to count pensions in net worth. The general consensus is that they don't count toward net worth since they aren't an asset, but they certainly count toward how you might set your AA in retirement. Pensions are an example of how net worth isn't the whole story. I would be leery of retiring on my net worth, but my wife and I have pensions so large we still LBYM on the pension stream alone. Our net worth doesn't really matter for our retirement.
Ok, I'm lost. I don't understand why my pension isn't an asset. What else is it?

Like some, I'm not particularly interested in calculating my NW (in part because of the pension and my expenses). But I know what my pension amount will be and I know when I'm going to retire and collect it. Not sure why I wouldn't take this into account as an asset and treat it as fixed income component.
Hence the debate. Can you sell your pension? Almost certainly not. When I think of net worth I could calculate it a couple ways, without the pension or counting the pension as being worth what it would cost to buy an equivalent annuity. So if I want an ego boost I guess I can justify jacking up my net worth by about $3 million, but there's not much point other than that.

See: viewtopic.php?t=160474

viewtopic.php?t=38294
viewtopic.php?t=222881

Freefun
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Re: What's the ideal safe retirement net worth target?

Post by Freefun » Thu May 17, 2018 5:39 pm

GCD wrote:
Thu May 17, 2018 5:26 pm
Freefun wrote:
Thu May 17, 2018 4:56 pm
GCD wrote:
Thu May 17, 2018 4:43 pm
I may have missed it in the discussion about SS, but people have pensions as well. It has been debated on BH in numerous threads as to how to count pensions in net worth. The general consensus is that they don't count toward net worth since they aren't an asset, but they certainly count toward how you might set your AA in retirement. Pensions are an example of how net worth isn't the whole story. I would be leery of retiring on my net worth, but my wife and I have pensions so large we still LBYM on the pension stream alone. Our net worth doesn't really matter for our retirement.
Ok, I'm lost. I don't understand why my pension isn't an asset. What else is it?

Like some, I'm not particularly interested in calculating my NW (in part because of the pension and my expenses). But I know what my pension amount will be and I know when I'm going to retire and collect it. Not sure why I wouldn't take this into account as an asset and treat it as fixed income component.
Hence the debate. Can you sell your pension? Almost certainly not. When I think of net worth I could calculate it a couple ways, without the pension or counting the pension as being worth what it would cost to buy an equivalent annuity. So if I want an ego boost I guess I can justify jacking up my net worth by about $3 million, but there's not much point other than that.

See: viewtopic.php?t=160474

viewtopic.php?t=38294
viewtopic.php?t=222881
Thank you. Helpful threads.

From an accounting standpoint a pension is an asset.

My take from the debates is that there's varying opinions on whether to consider pension as part of NW calculations.
Remember when you wanted what you currently have?

WhiteMaxima
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Re: What's the ideal safe retirement net worth target?

Post by WhiteMaxima » Thu May 17, 2018 5:41 pm

30x you project retirement spending. Let's say you need 120k in your retirement, and you will have 20k in SS and pension combined. you would need 100k x30 =3 mil in savings. Don't forget house equity should be also included. To most American, their house is the biggest asset. So the real number might be less. That's assume you don't want to leave any asset to heirs. so 20 to 30 times is a rough number.

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Re: What's the ideal safe retirement net worth target?

Post by The Wizard » Thu May 17, 2018 5:49 pm

A pension is an Income Stream asset, not a Net Worth portfolio asset.
Same with SS and Immediate Annuties.

When you are close to or in retirement, you should be analyzing in the Income Stream domain. Don't fiddle with trying to convert pensions back to their asset equivalents...
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Re: What's the ideal safe retirement net worth target?

Post by dbr » Thu May 17, 2018 6:41 pm

Freefun wrote:
Thu May 17, 2018 5:39 pm

Thank you. Helpful threads.

From an accounting standpoint a pension is an asset.

My take from the debates is that there's varying opinions on whether to consider pension as part of NW calculations.
It isn't a debate about what you call things. That debate can be held elsewhere by anyone interested in it. The discussion is how to do the math of providing income in retirement. One piece of that math is figuring out how much income can be provided by a portfolio of investments. If someone want to present an existing income stream as an investment asset in order to estimate how much income that asset can supply, they can do that. It is probably simpler to present the income an income stream can supply as the income the income stream does supply.

Another aspect of the problem is the issue of how much risk to take in designing a portfolio. Trying to present an income stream as a safe asset in order to argue that the actual assets should be invested more aggressively ignores the fact that the asset risk and return of an income stream isn't commensurable with how we think of those things for assets such as stocks and bonds. In any case if one wants to do such a thing one needs to begin with knowing how to arrive at the risk and return one wants. There is a very good approach for doing that which takes the existence of income streams into account without calling them assets. That is the method of need, ability, and willingness to take risk. An example of a method of determining asset allocation that gets the whole problem confounded is to say one should hold age in bonds, but to take income streams into account they should be capitalized as bonds. There is no other day to do age in bonds and also consider circumstances. The result is to force the actual asset allocation to a riskier allocation to stocks. By chance that might or might not be a good idea, but not for this reason.

More than that, one can certainly write a mathematical model for retirement income that considers income streams as income streams and follows the risk, return, and withdrawals from the portfolio to see what happens. Virtually all the retirement spending models out there to this problem this way.

As to net worth, that is a completely different thing from deciding how much risk to take with investments or how to convert wealth to income. For net worth purposes there may well be use to consider future income streams as present net worth.

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Re: What's the ideal safe retirement net worth target?

Post by CyberGuy » Thu May 17, 2018 8:56 pm

25x annual expenses. Utilizing the 4% safe withdraw rule you'll be good to go. If the market tanks or things go south go find a part time gig or cut back on spending until the market bounces back.

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Re: What's the ideal safe retirement net worth target?

Post by Stacking_Benjamins » Thu May 17, 2018 9:16 pm

technovelist wrote:
Wed Jun 15, 2016 12:59 pm
Enough to buy a (joint, if necessary)
I like your quote ending here :wink:

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Re: What's the ideal safe retirement net worth target?

Post by Hubris » Thu May 17, 2018 9:33 pm

Relative to the issue of whether to count a pension as an asset for net worth, I look at net worth as the Balance Sheet in which case one would count either purchase value or liquidation value. If the pension terminates at the owner’s death, then liquidation value = $0.00 although one can consider it as part of an income stream, as part of one’s P&L or Income Statement.

For our family, we count our Long Term Care policy as an asset and part of our net worth since it has a defined liquidation value, meaning that we can cash it in at a defined value at any point while we’re still alive. We also count our house at purchase value knowing it has appreciated substantially. For planning purposes, we’ll occasionally do scenario planning that includes a current market value estimate, adjusted to net out for our mortgage balance and realtor commissions.

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Re: What's the ideal safe retirement net worth target?

Post by willthrill81 » Thu May 17, 2018 11:11 pm

CyberGuy wrote:
Thu May 17, 2018 8:56 pm
25x annual expenses. Utilizing the 4% safe withdraw rule you'll be good to go. If the market tanks or things go south go find a part time gig or cut back on spending until the market bounces back.
While I think that 4% is very likely to be a fine WR going forward, it can be more complicated that just working "until the market bounces back" unless you're able to completely suspend your withdrawals during the downturn. For instance, if I'm using the '4% rule' with a $1 million portfolio that suddenly drops in value by 50%, I'm now making 8% withdrawals. That really hurts a portfolio, and the longer it takes the market to recover, the more additional time it will take to get the portfolio back to where it was before.

For instance, $10k invested in a mix of 60% TSM/40% TBM in Jan., 2000, would have dropped to a low of $8,238 in 2002 before recovering to its starting value in Nov., 2003. But had the '4% rule' been used ($400 plus annual inflation withdrawn every year), the portfolio would not have recovered until Oct., 2007, right before the financial crisis, and it would not have gone back up to $10k until Jun., 2014. Withdrawals can really slow down a portfolio's recovery time.
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Re: What's the ideal safe retirement net worth target?

Post by tibbitts » Thu May 17, 2018 11:16 pm

asdf1 wrote:
Wed Jun 15, 2016 11:08 am
I am curious what everyone think's would be the "safe" net-worth target to enable a couple to retire comfortably, no matter where they live in the country (so obviously assuming they continue to live in HCL area)?
Always, about 50% more than however much they have.

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Re: What's the ideal safe retirement net worth target?

Post by Portfolio7 » Fri May 18, 2018 10:48 am

bertilak wrote:
Wed Jun 15, 2016 12:49 pm
avalpert wrote:It has to be defined in terms of target spending - the 'average' number would be meaningless to everyone except that mythical average person.
Agreed. Income vs. expenses is what counts in the long run.
I would say 25-30 times expenses is a safe target.
It is reasonable to use a ballpark figure like that as a long term goal but be sure not to count your home, your yacht or your his and hers Bentleys as part of that 25x!
+1

So much depends on your circumstance. Do you have a pension? Other assets you plan to sell? A spouse that worked (this might impact your SS)? My parents can maintain their lifestyle on their pensions and SS. With a similar lifestyle and real savings, but virtually no pension - I won't be able to. It's worth taking the time to break it down.

We are aiming for retirement assets to be about 70% of our NW at retirement. We won't get to 25x expenses in savings, but with SS, a small pension, and some other resources, we should be close in total.
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Re: What's the ideal safe retirement net worth target?

Post by dbr » Fri May 18, 2018 10:53 am

Portfolio7 wrote:
Fri May 18, 2018 10:48 am


We are aiming for retirement assets to be about 70% of our NW at retirement. We won't get to 25x expenses in savings, but with SS, a small pension, and some other resources, we should be close in total.
What does this mean? What it should mean is that net income needed after SS, pension, and other resources would be 1/25 of retirement savings. I don't know what rationale there would be for retirement assets to be 70% of net worth at retirement, though a person owning a home and/or other assets that are not drawn on for income might be roughly in that position.

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